Does Your Money Market Account Pay Better Than This ETF?

Sep.13.12 | About: Guggenheim Enhanced (GSY)

With many money market bank accounts paying just a small fraction of a percent in interest, investors continue to look for similar safe investments that provide a better yield. Compare your money market account's interest rate to this ETF. The Guggenheim Enhanced Short Duration Bond ETF (NYSEARCA:GSY) yields 0.45%. Although not a spectacular yield, it does pay better than many bank money market deposit accounts.

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The GSY ETF has a goal of preserving capital and daily liquidity while maximizing current income. The fund invests at least 80% of its net assets in fixed income securities. It invests mostly in U.S. investment grade debt securities including U.S. Treasury securities and corporate bonds rated Baa3 or higher by Moody's Investor Services (NYSE:MCO), Standard & Poor's Rating Group, or Fitch Rating Services. No more than 10% of the fund is invested in high-yield junk bonds.

It should be noted that GSY is not a money market fund and therefore does not seek to maintain a stable net asset value of $1. Also be aware that GSY is not a bank deposit account so it is not FDIC insured like a standard money market bank account. Furthermore, the fund has an annual expense ratio of 0.26%.

After a search for money market funds on Bankrate.com, I discovered that there are a good number of bank deposit money market accounts (MMA) with yields as high as 1.05%. Union Federal Savings Bank provides a money market with an interest rate of 1.05%. EverBank (NYSE:EVER) offers an MMA with an interest rate of 1.01%. Sallie Mae offers an MMA with an interest rate of 1%.

With these interest rates significantly outpacing GSY's yield of 0.45%, I would easily prefer to go with the 1% bank account yielders for liquid emergency fund purposes. Another reason to go with the bank money market accounts is the fact that they are FDIC insured which provides an extra dose of comfort or peace of mind.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.